BOT raises economic growth forecast to 3.5%

The seven members of the central bank’s Monetary Policy Committee yesterday voted unanimously to leave the policy rate untouched at 1.5 per cent, as the economic recovery still has legs.
The export sector had performed well while domestic demand was gradually picking up, but not yet spreading across the board, the central bank said. 
Inflation dipped below the target in some months but would trend up in the second half of the year, the MPC said. The central bank’s inflation target is 2.5 per cent, plus or minus 1.5 percentage points for this year. 
Increases in exports and tourists arrivals, as well as public spending, would contribute to higher growth.
However, the purchasing power of people had not yet revived much as the expansion in exports has not yet fully translated into higher income for workers in manufacturing. The MPC warned about the risks to the momentum of the global recovery, uncertainty over US trade policies and geopolitical conflicts. 
It also pointed to the risk of a loss of competitiveness of small and medium-sized enterprises and the impact of low domestic interest rates, which may encourage people to invest in risk assets. 
Regarding the exchange rate, the MPC said the baht had moved up along with other currencies in the region. However, short-term fund flows must remain under close watch.
A market analyst expressed worries about the emerging deflationary pressure and urged the central bank to do more than just leave the policy interest rate unchanged.
It was no surprise that the MPC kept the status quo for the past two years and the 17th straight meeting, said Kobsithi Silapachai, head of capital markets research at Kasikornbank.
Given the subdued inflation, the MPC should ease monetary policy either via interest rates or exchange rates.
Headline inflation last month was a negative 0.05 per cent, sunk in negative territory for the second month in a row. 
The Commerce Ministry revised down its inflation projection to 0.7-1.7 per cent this year from 1.5-2.2 per cent.
Kobsithi said he is more concerned about the no-show of inflation. 
He also worried about Thailand’s soaring currency. If the baht stays strong, it would tighten baht liquidity for exporters and cause import prices in baht terms to decline, which would lead to deflation.
The baht has clawed back about 5 per cent against the US dollar since early this year, making it one of the highest-flying currencies in the region.
Exporters have also expressed fear over the fast appreciation of the baht because it will make Thai products more expensive than those of foreign rivals, while the central bank has urged them to hedge against exchange rate volatility.